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2. Consider the following monetary payoffs for two investments, A and B, and the associated probabilities of earning these payoffs. Investment A Probability .1 .1
2. Consider the following monetary payoffs for two investments, A and B, and the associated probabilities of earning these payoffs. Investment A Probability .1 .1 .2 Payoff 0 40 50 60 100 4 .2 Investment B gives a monetary payoff of $49 for sure. C. a. What are the mean and variance of monetary payoffs from these two investments? b. Which investment has the highest expected monetary payoff? Albert has the following utility function for money: u = 5x 25, where x is the amount of money he receives. Which of the two investments would he prefer? d. How high would a sure monetary payoff have to be for Albert to make him indifferent between this amount and investment A? e. Britney has the following utility function for money: u = x5, where x is the amount of money she receives. Which of the two investments would she prefer? f. How high would a sure monetary payoff have to be for Britney to make her indifferent between this amount and investment A
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